Small UK marketplace sellers are being severely undercut by online VAT fraud committed by overseas competitors, according to a new parliamentary report that has demanded tougher action from HMRC on illegal tax practices.
After an investigation, MPs in the parliamentary public accounts committee (PAC) warned that British business owners were being “hit hard” by international competitors selling goods without VAT, undercutting UK firms by up to 20 per cent.
Official HMRC figures showed that UK taxpayers lost between £1bn and £1.5bn from online VAT fraud in the 2015/16 tax year, with companies based outside the European Union failing to charge VAT on sales despite their legal obligation to do so.
The committee decided that online marketplaces, such as eBay, “had not been taking the issue of VAT fraud seriously” and were failing to prevent fraudulent activity. It conducted mystery shopping to demonstrate how easy it was to buy a product from an eBay seller without VAT added, and have it delivered next day to the UK.
In its report, the committee also called on HMRC to take a tougher stance on fraudsters having been slow to catch onto the issue. MPs described the tax office as “playing a game of cat and mouse” with companies based outside the UK, and said HMRC was “too cautious” in exercising its powers.
So far, HMRC has yet to prosecute a single seller for committing online VAT fraud, nor has it “named and shamed” guilty companies.
The report called for new arrangements to be implemented by March 2018 that ensured greater collaboration between HMRC and online marketplaces in the fight against online VAT fraud.
Addressing the committee, Meg Hillier, committee chair and Labour Party MP for Hackney South and Shoreditch, said British business owners had not been sufficiently protected by HMRC or the online marketplaces where VAT fraudsters were operating.
“Online VAT fraud is hugely damaging yet, as online sales continue to grow, the response of HMRC and the marketplaces where fraudsters operate has been dismal,” Hillier said.
Hillier urged HMRC to push for greater powers in tackling fraudsters “as a priority”.
“Online marketplaces tell us they are committed to removing ‘bad actors’ yet that sentiment rings hollow when those same marketplaces continue to profit from the actions of rogue traders,” she added.
“They can and should do more to drive them out and we will expect online marketplaces to cooperate fully with HMRC in tackling non-compliance.
“Our own mystery shopping exercise demonstrated just how simple it is to buy goods online without paying VAT. We got no sense that the traders responsible felt under any obligation to pay their dues.
“Clearly this is not good enough. The message must go out loud, clear and backed by the full weight of law: the UK is not a soft touch for VAT fraudsters.”
— Public Accounts Comm (@CommonsPAC) October 18, 2017
Find out how the EU’s Google ruling could prevent small retailers competing with Amazon and eBay
Sign up to our newsletter to get the latest from Business Advice.